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In re Petition for Disciplinary Action against Bonner

Supreme Court of Minnesota

May 31, 2017

In re Petition for Disciplinary Action against John F. Bonner, III, a Minnesota Attorney, Registration No. 0009726

         Original Jurisdiction Office of Appellate Courts

          Susan M. Humiston, Director, Cassie Hanson, Assistant Director, Office of Lawyers Professional Responsibility, Saint Paul, Minnesota, for petitioner.

          Jon M. Hopeman, Lauren M. Krueger, Felhaber Larson, Minneapolis, Minnesota, for respondent attorney.

         SYLLABUS

         1. The referee did not clearly err by concluding that the Director of the Office of Lawyers Professional Responsibility failed to prove the allegations in Count II of the petition.

         2. The referee clearly erred in his findings on several mitigating factors.

         3. Given the mitigating factors present, the appropriate discipline for respondent's conviction of felony theft by swindle is an indefinite suspension with no right to petition for reinstatement for 9 months.

          OPINION

          PER CURIAM.

         The Director of the Office of Lawyers Professional Responsibility (Director) filed a petition for disciplinary action against John F. Bonner, III, alleging that while acting as principal owner of a law firm, Bonner failed to remit withheld employee contributions into employees' retirement accounts and instead used the funds to pay both his law firm's and his own expenses. Count I of the petition involved conduct for which Bonner was convicted of felony theft by swindle. Count II involved similar conduct to Count I but was not covered by the time frame underlying the conviction. We appointed a referee, who found that, although Bonner's conduct in Count I violated Minn. R. Prof. Conduct 8.4(b) and 8.4(c), with respect to Count II, the Director had failed to prove by clear and convincing evidence that Bonner violated Minn. R. Prof. Conduct 8.4(c). The referee also found one aggravating factor and several mitigating factors. The referee recommended a 90-day suspension.

         The Director challenges the referee's findings, and both parties challenge the referee's recommended discipline. We hold that the referee did not clearly err by concluding that the Director failed to prove the allegations in Count II of the petition. We further hold that the referee clearly erred in his findings on several mitigating factors. We conclude that, given the mitigating factors present, the appropriate discipline for respondent's conviction of felony theft by swindle is an indefinite suspension with no right to petition for reinstatement for 9 months.

         FACTS

         Bonner was admitted to practice law in Minnesota on October 5, 1973. In 1998, Bonner founded the law firm of Bonner & Borhart, LLP (firm). From the firm's inception, Bonner held more than a majority ownership interest. Between 2009 and 2014, the period of time at issue in this case, five attorneys worked at the firm, along with other support staff. As the principal owner and managing partner, Bonner was responsible for paying the firm's bills and expenses.

         In 2000, the firm established a SIMPLE IRA Plan (Plan) to provide retirement benefits to employees. Bonner was the fiduciary of the Plan and was responsible for depositing the withheld employee retirement contributions into the Plan.

         The Plan worked in the following manner. The firm hired one outside vendor that processed payroll and managed the employee-contribution paperwork. With this paperwork, an employee designated how much to contribute to an individual retirement account (IRA). Each pay period, the amount elected was deducted from the employee's pay check. Each month, a second outside vendor prepared and sent checks to Bonner for the amount the employee had designated. After Bonner signed the checks, they were sent to the company that managed the Plan, which deposited the funds into the appropriate employee's IRA. Between 2000 and 2008, Bonner remitted withheld employee contributions on time and in full.[1]

         As a result of the 2007-08 recession, the firm began experiencing financial problems in 2009. Bonner began prioritizing expenses because the firm lacked sufficient funds to pay all of its operating expenses on a monthly basis. Bonner put staff salaries at the top of the priority list, followed by medical insurance, attorney salaries, rent, and finally other vendors and IRA payments.

         Although Bonner stopped depositing the withheld employee contributions into the Plan on a regular basis in 2009, he made sporadic payments to the Plan in March, April, May, and July 2010. Bonner caught up on all missing payments in November 2010. Although he was late on payments thereafter, he made payments in 2012, 2013, and 2014.[2]Between January 15, 2009, and May 12, 2014, Bonner failed to timely deposit $133, 127.53 in withheld employee contributions into their IRA accounts and never deposited $23, 334.63 in withheld employee contributions into those accounts.

         Bonner testified that he was unaware that the employee contributions to the IRA plan were made with funds withheld from employee salaries; rather, he believed that the firm was making these contributions with firm profits. Bonner agreed that the form for setting up the Plan explained the use of employee contributions, but he testified that he likely did not read it. Bonner contends that it was not until the United States Department of Labor (DOL) began an investigation in September 2012 that he learned that the employee contributions were made with funds withheld from employee salaries.

         Bonner also testified that employees knew about the firm's financial condition and that their retirement contributions were not being deposited into their IRAs, even though the contributions continued to be deducted from their paychecks. Bonner and one of the firm's attorneys testified that the firm kept open books for attorneys to review. The attorney also said that he knew that his employee contributions were not being deposited into his IRA account, despite the ongoing deduction from his monthly salary. In fact, the attorney had conversations with all of the attorneys at the firm about the firm's failure to make deposits into their IRA accounts. In addition, one partner and one member of the support staff stopped contributing to their IRAs because they knew their payments were not being deposited.

         In August 2009, the firm took out a revolving line of credit at Landmark Bank that Bonner personally guaranteed. In December 2012, the firm[3] took out another loan, also personally guaranteed by Bonner, to pay off the Landmark credit line. Between 2009 and 2014, Bonner paid the staff salaries in full and on time despite other firm bills going unpaid. During this period, Bonner did not take a salary, but he did take draws from the firm to cover his cost-of-living and court-ordered expenses.[4] Bonner also contributed personal funds to the firm totaling $295, 000.[5]

         In summer 2011, Bonner and three attorneys of the firm met to discuss eliminating the Plan in light of the firm's finances, but Bonner was adamant that the Plan continue unchanged because employees and attorneys depended on this benefit. Bonner testified that he believed the firm would catch up on the missed payments.

         On July 31, 2014, Bonner was charged in Hennepin County District Court with felony theft by swindle, Minn. Stat. § 609.52, subd. 2(a)(4) (2016), for his failure to deposit $6, 068.08 in withheld employee contributions into the IRA accounts of two firm attorneys from August 23, 2011, to January 31, 2012. The evidence at trial proved that Bonner kept withheld employee contributions in the firm's business account, which was used to pay the firm's business expenses and some of Bonner's personal expenses.

         Two attorneys also testified at trial. The first testified that he was aware that his employee contributions were not being deposited and that Bonner failed to make a catch-up payment in 2011, despite promising to do so. The other attorney provided inconsistent testimony regarding her knowledge about whether the employee contributions were being deposited into her IRA account.[6]

         Bonner was convicted of felony theft by swindle on January 2, 2015. As part of his sentence, Bonner was required to make full restitution and pay a fine of $6, 000. Bonner was also placed on probation for 3 years, which was originally set to end in March 2018. The district court discharged him from probation early, effective January 27, 2017.[7]

         On January 8, 2015, the DOL filed a civil complaint against Bonner, alleging that from January 15, 2009, through May 12, 2014, Bonner failed to timely deposit $133, 127.53 in withheld employee contributions into the Plan and never deposited $23, 334.63 (which included the $6, 068.08 that was the subject of the criminal case).[8] Bonner made all required payments to the appropriate IRA accounts by April 15, 2016, and paid an additional $9, 658.98 to those employees' accounts to compensate for lost opportunity costs. Bonner and the DOL entered into a consent order and judgment dismissing the case on May 5, 2016.

         On January 14, 2015, the Director began investigating Bonner as a result of his felony conviction and the DOL lawsuit. The November 6, 2015 petition for disciplinary action alleged that Bonner's conduct that resulted in his felony conviction violated Minn. R. Prof. Conduct 8.4(b) (prohibiting criminal acts that reflect adversely on the lawyer's honesty, trustworthiness, or fitness as a lawyer) and 8.4(c) (prohibiting conduct involving dishonesty, fraud, deceit, or misrepresentation) (Count I), and that Bonner's failure to deposit withheld employee contributions between January 15, 2009, to May 12, 2014, violated Minn. R. Prof. Conduct 8.4(c) (Count II).

         In response, Bonner admitted that he failed to deposit withheld employee contributions into the Plan. Bonner stated that during the relevant time, there often was a shortage of funds in the firm's business account to pay the firm's overhead expenses and that it was during those times that withheld employee contributions were not deposited or were deposited in an untimely fashion. Bonner also asserted several mitigating factors.

         At the hearing before the referee, two attorneys testified to Bonner's good character and reputation. An attorney formerly employed by the firm, one of the victims of the conduct underlying Bonner's criminal conviction, also testified to Bonner's trustworthiness and competency and said that Bonner never lied to him or told him that the IRA payments were being deposited when they were not.

         Following the hearing, the referee issued findings of fact, conclusions of law, and a recommendation for discipline. With respect to Count I, the referee found that Bonner's conviction for felony theft by swindle violated Minn. R. Prof. Conduct 8.4(b) and 8.4(c) but that with respect to Count II the Director failed to prove by clear and convincing evidence that Bonner violated Minn. R. Prof. Conduct 8.4(c).[9] The referee recommended that Count II be dismissed and that Bonner receive a 90-day suspension for the misconduct proven in Count I.

         ANALYSIS

         When we are provided a transcript of attorney discipline proceedings, "the referee's findings of fact and conclusions of law are not binding." In re Glasser, 831 N.W.2d 644, 646 (Minn. 2013); see also Rule 14(e), Rules on Lawyers Professional Responsibility (RLPR) ("If either the respondent or the Director so orders a transcript, then none of the findings of fact or conclusions shall be conclusive, and either party may challenge any findings of fact or conclusions."). But we give great deference to a referee's findings and will not reverse the referee when the findings have evidentiary support in the record and are not clearly erroneous. In re Aitken, 787 N.W.2d 152, 158 (Minn. 2010). "A referee's findings are clearly erroneous when they leave us 'with the definite and firm conviction that a mistake has been made.' " Glasser, 831 N.W.2d at 646 (quoting In re Albrecht, 779 N.W.2d 530, 535 (Minn. 2010)).

          I.

         The Director contends that the referee clearly erred by concluding that she failed to prove that Bonner violated Minn. R. Prof. Conduct 8.4(c) as alleged in Count II of the petition. Rule 8.4(c) provides: "It is professional misconduct for a lawyer to . . . engage in conduct involving dishonesty, fraud, deceit, or misrepresentation." Id. The Director bears the burden of proving by clear and convincing evidence that an attorney has violated the Minnesota Rules of Professional Conduct. In re Varriano, 755 N.W.2d 282, 288 (Minn. 2008). This standard "requires a high probability that the facts are true." In re Lyons, 780 N.W.2d 629, 635 (Minn. 2010). The Director must, in other words, prove the ...


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